Family business failures: A serious global concern

IN a well-written article in Vanity Fair, author Suzanna Andrews remarked that Jay Pritzker quietly built an empire of more than 200 companies, including Hyatt Hotels Corp., and a network of 1,000 family trusts.

But one of the patriarch’s final deals before his 1999 death, designed to bind his heirs closer, unleashed a torrent of anger, greed, and betrayal, culminating in a $6-billion lawsuit by his niece.

The death led to a battle among siblings and family members where lawsuits and accusations led to a public battle and the company eventually split up.

External Shock: Family business leaders unprepared for future events

Only a minority of wealthy families retain their wealth position over time. Out of 100 families in the Forbes list in 1999, 64 percent of those in the top lost their position. Of course, their where many external upheavals that took many businesses out of the market the past 15 years, starting with the technological shock in 2000 and the global financial meltdown in 2008 that practically decimated family businesses all over the world.

But the ill-equipped and unprepared successors contributed to the demise of these well-established businesses. The key, therefore, is for business owners to future-proof the organization and be highly innovative.

Changes in the marketplace and the rising global competition have created so much alarm bells for family businesses to start revisiting their business models. There is no other option but to stay relevant and highly competitive.

The numbers in Europe and the declining business succession

My visit to Europe this month to research on family enterprises was very enlightening. In a report by EFB, the umbrella federation of family businesses across Europe, family-owned businesses provides some startling contribution to the European economy:

They represent around 50 percent of Europe’s GDP.

More than 14 million business are classified as family-owned businesses.

They contribute 60 million jobs.

I also discovered that many family-owned businesses in the European Union are unsuccessful in managing intergenerational transmissions and vanish after the first generation. I am not at all surprised.

In one of my family business engagements in London more than a couple of years ago, I discovered that the continued drop in numbers of family businesses transitioning from the second to the third generation already showed worrisome figures.

Germany topped the list with 24 percent left in the second generation and down to single-digits in the third generation. Not a single family business survived the fourth generation.

Still reeling from its exit from the European Union, the United kingdom came in a close second with less than 30 percent left in the second generation and a mere 12 percent going into the third generation, with zero left in the fourth generation.

The trend was similar for French family enterprises but they fared better, posting an above average eight percent, somewhat overcoming the third generation curse. The single digit survival rate however is still bad news for family enterprises.

Sibling Rivalry: A fight for control of the $96-billion Empire

Acrimony and family conflict is a global concern.

Shin Kyuk Ho was born in the southern Korean city of Ulsan in 1922 and founded Lotte in 1948. The business grew from selling chewing gum in post-war Japan to becoming a major confectionery and diversified multinational corporation with overseas branches.

The bulk of its business is in Korea, where it has 80 affiliates in areas ranging from department stores to amusements parks and hotels, with an estimated $96 billion in assets. It is now South Korea’s fifth largest conglomerate.

The conflict started when the founder Shin Kyuk-ho and eldest son Dong-joo visited Lotte Holdings last year and ended up firing six board members, including youngest son Dong-bin.

With his back against the wall, Dong-bin called an emergency board meeting, reinstated the fired board members while declaring the ouster of his father and relegating him to honorary chairman. Having lost his board seat at the family-controlled conglomerate’s lodgings and duty-free sales unit Hotel Lotte Co., the 93-year-old founder filed legal action against Dong-bin.

With the vicious family conflict, the group has shelved a $4.5-billion Hotel Lotte IPO.

To quote Singapore’s Strait Times, “while succession battles are not unusual in South Korea, a son overthrowing his aged father is almost unheard of in a Confucian society where respect is valued.”

On a lighter note, my message to family business owners: the New Year offers new beginnings, fresh starts, reaffirmations of love and harmony so we can all work towards a brighter future!

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